IRA’s Impact on the US
Biopharma Ecosystem
June 1, 2023

Prepared by
Daniel Gassull
Research Partner

Harry Bowen
Consulting Economist

Duane SchulthessCEOExecutive Summary•

Vital Transformation (VT) modeled and estimated the impacts of the Inflation Reduction Act’s (IRA) pricing
provisions for a cohort of the top 200 Part B and D drugs by CMS spend, resulting in 92 drugs impacted by IRA in
the next 10 years, which are produced, collectively, by 41 biopharmaceutical companies.

•

Had the IRA been in place beginning in 2014, we estimate the reductions in revenue on the impacted drugs to beup to 40%. Because of this, between 24 and 49 therapies currently available today would most likely not havecome to market and therefore not available for patients and their providers.

•

Looking forward, we estimate that because of the IRA pricing provisions, the substantial reduction in revenue will
significantly narrow investment opportunities. Conservatively, as many as 139 drugs over the next 10 years are at
risk of not being developed at all.

•Both biologics and small molecule drugs are impacted, with an average reduction in revenue per therapy of $4.9
billion and $4 billion respectively.

•

IRA provides a negotiation exemption for orphan drugs that treat only one rare disease. This disincentivizes
investments in orphan drugs and areas of high unmet patient need as the broader indications will provide asuperior return on investment, as much as $500 million over three years.

•

Based on two impact scenarios, we estimate a loss of between 66,800 - 135,900 direct and 342,000 - 676,000
indirect jobs in the U.S. biopharma ecosystem.
© Vital Transformation, LLC 2023

2

Study Objectives:•••

Model the impact of the Inflation Reduction Act (IRA) on the biopharmaceutical industry:o

We assume that the, “Maximum Fair Price”, or ceiling price, is a best-case scenario for the cohort of drugs pricecontrolled each year.

o

We compare the projected global revenues from 2026 through 2035 at average market growth rates which are far
below the current rate of inflation, to the revised revenues after the implementation of IRA.

o

All revenues are adjusted to 2023 USD (CPI-U).

o

We segment results by small molecules, biologics, indications, and orphan status.

We model IRA’s impacts for the entire commercial market:o

IRA states clearly that the “Maximum Fair Price”, or ceiling price, will be “announced”; there is no provision for“announced” price reductions to be confidential, inviting political pressures to apply reductions to commercial prices.

o

We assume a two year delay for the impacts of the IRA to impact commercial pricing.

We calculated the impact of IRA on the investment ecosystem, drug development, and orphan
therapies, jobs, and future patient access under the above scenarios.
•

We use a retrospective cohort analysis to determine the impacts of IRA at the asset level if the law had impacted firmlevel decisions from 2014.
© Vital Transformation, LLC 2023

3

Overview: Modeling the IRA•

Baseline US revenue and CMS spend per product from 2023 to 2040 were modeled by separating pre- and postgeneric revenue profiles of the 30 largest selling products over 10 years.

•

All values were adjusted to 2023 constant dollars.

•‘Negotiated price" impacts begin in 2026 for single source small molecules and in 2028 for single source large
molecules.

•

We used SEC filings to determine the prevalence, by disease group, of those over 65 versus rest of population toassign revenues per drug as arising from either the commercial or Medicare market.

•

For small molecules, the “negotiated ceiling price" was based upon the following criteria:o Short Monopoly: 9-11 years after approval, 75% of Non-Federal Average Manufacturers Price (non-FAMP),o Extended Monopoly: 12-15 years after approval, 65% of non-FAMP,o Long Monopoly: 16+ years, 40% of non-FAMP.

•

For large molecules, the “negotiated ceiling price" was based upon the following criteria:o Short Monopoly: 13 -15 years after approval, 75% of Non-Federal Average Manufacturers Price (non-FAMP),o Extended Monopoly: 16-18 years after approval, 65% of non-FAMP,o Long Monopoly: 19+ years, 40% of non-FAMP.
© Vital Transformation, LLC 2023

4

IRA’s Impact on Drug Discovery© Vital Transformation, LLC 2023

5

To estimate future revenues of drugs approved by FDA, we modeled theperformance of the top selling 30 drugs over the last 10 years from market entry
through to generic competition.
Average US sales of top 30 products by year since FDA approval(Excluding Peak Sales Outliers)
3500,03000,02500,02000,0

Revenue impacted by IRA

1500,01000,0500,0Revenue impacted by IRA

0,0
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

Years since Approval
Small Molecules

Biologics

Arrows indicate where IRA will put revenues at risk for negotiation after years 9 & 13
© Vital Transformation, LLC 2023

6

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Despite the political rhetoric, the Pharma sector is not overly profitable

Biotechnology is excluded as it is ranked 92nd

Net Profit Margin of Top 25 Sectors, Jan 2023 Data30%
28% 27% 26%
26% 25% 25%
24% 23% 23%
22% 22%
21% 20%
18% 18%© Vital Transformation, LLC 2023

17% 17% 16%
15% 15% 15% 15% 15% 15%

Source: https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html

7

IRA has a substantial impact on biopharma sector revenues
41 firms, 92 Therapies

Billions

IRA Impact on Revenues, 2026-2035
$300

$264

$263

$261

$258

0
$258

$251

$239

$225

$244

$200

$223

$206

$216
$161

$181

IRA Impact $USD

$207

$147

$197

$129

-25%

$190

$113

-0,25 IRA Impact %

-29%

$100

-34%
-40%
$0

-0,5
2026

2027

2028

2029
Pre IRA

2030
Post IRA

2031

2032

2033

2034

2035

% Decline© Vital Transformation, LLC 2023

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IRA’s impact on available cash for investments/pipelines
2026 - 2035•

IRA reduces the ability ofcompanies to reinvest their free
cash flow into their future
pipelines.

•

Over the period from 2018-2022,
the 25% most impacted
companies see revenue
reductions in annual earnings(EBIT) exceeding -350% .

•IRA primarily impacts the mostsuccessful and innovative
therapies, which fund a majorityof the R&D in the biopharma
ecosystem.

•

It’s worth noting that even a 12%
drop in EBIT will have substantial
negative impacts at the firm level,
requiring major cuts in personnel
and operations..

Impact of IRA on Avg Frim EBIT (Free Cashflow) by Quartile
2023 constant dollars
Top Quartile
Average

Median2nd Quartile
Average

Median-37%-34%

3rrd Quartile

4th Quartile

Average

MedianAverage

Median

-12%

-12%

-4%

-3%

0%
-50%

Profitable-100%

Operatinglosses

-150%
-200%

-174%

-250%
-300%
-350%
-400%

-367%

EBIT = earnings before interest expense and taxes, i.e., year end net cash available to a firm
© Vital Transformation, LLC 2023

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R&D programs will be cut when revenues are reduced under IRA“The pharmaceutical industry invests 25%of total sales into R&D. . . what is acompany going to do with less revenues?
When Lipitor went off patent . . we closed
research sites around the globe. Fewer
researchers, and fewer research programs.
Is this really what we want to do?”John LaMattina, former President of Pfizer
Global Research and Development, Forbes
contributor.

© Vital Transformation, LLC 2023

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Biopharma allocated, on average, 28% of revenues toward R&D in 2022
Biotech allocated 39%, Pharma allocated 18%
39%

R&D as a % of sales – Jan 2023
top 20 sectors

17%

13% 12%

9% 8% 8%6% 6% 6% 5% 5% 5%
4% 4% 4%

Dr
u

gs
(B
i
So otef tw char noloegSo(f tw Dru Se Inte y)ar gs mi c rnee(S (Pha ond t)yur
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s

19% 18% 18% 18%

Source: https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html© Vital Transformation, LLC 2023•

The biopharma sector, on
average, allocates 50%
more of it’s revenues to
R&D than the next closest
sector (Software andInternet companies).

•

Given projected revenue
reductions from IRA, we
can model the subsequent
impact on R&D spending
assuming that 20%, 30%,
or 40% of revenue isallocated to R&D.

•

The impacts on R&D
spending then allows one
to determine the impact on
drug development.
11

Sources of the cost basis of our analysis© Vital Transformation, LLC 2023

12

Impact of IRA Revenue Reductions on FDA Approvals
Cost Impact (USD 2022)
DiMasi ($2 bil)Jayasundara/Prasad ($1 bil)

AverageDrugs Lost by R&D Revenue Allocation
20%
30%
40%
-16
-25
-33
-32
-49
-65

-24

-37

-49

•

Using the risk weighted cash cost estimates of DiMasi and Jayasundara/Prasad for developing a
new therapy, we can calculate the impact of IRA on our cohort of firms.

•

Had the IRA been in place beginning in 2014, we estimate the reductions in revenue on theimpacted drugs to be so large to the impacted firms that between 24 and 49 therapies currently
available today would most likely not have come to market and therefore, not available forpatients and their providers.
© Vital Transformation, LLC 2023

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Projected losses of new FDA therapies per firm
On average, 23 firms would no longer develop 37 new medicines•

The revenue reductions for 23
of 41 firms in our cohort imply aloss of 37 new FDA approved
therapies.

•

The 41 firms in our cohort have
92 approved therapies impactedby IRA; a loss of 37 of theirdeveloped therapies represents
40% of their drug approvals inthis cohort.

•

IRA’s potential impact on new
drug development varies
depending on sales volume andhow close a therapy is tobecoming generic.

IRA Projected Drugs Loses Based on % Revenue Dedicated to R&D
Number of New Therapies Lost

Average DiMasi and Jayasundara/Prasad
9
8
7
6
5
4
3
2
1
0
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

Revenue % dedicated to R&D from 23 of 41 IRA impacted companies
20%

40%

30%

© Vital Transformation, LLC 2023

22

23

14

IRA's Impact on Drug Discovery:
Our IRA model predicts a 40% reduction in FDA approvals
23 impacted firms, 2026 – 2035

Indication
Oncology
Autoimmune
Infectious Disease
Neurology
Endocrine
Respiratory
CardiovascularPsychiatry
Hematology
Ophthalmology
Gastroenterology
MetabolicGrand Total

Total

Current

Post IRA# Lost

Non-Orphan

OrphanNon-Orphan

OrphanNon-Orphan

Orphan

16
5
6
6
7
5
3
4
2
2
2

19
4
3
1

10
3
4
4
4
3
2
2
1
1
1

11
2
2
1

6
2
2
2
3
2
1
2
1
1
1

8
2
1
0

1
2
2
1
1
34

58

92

1
1
1
1
1
20

35

55

© Vital Transformation, LLC 2023

0
1
1
0
0
14

23

37
15

IRA's Impact on Drug Discovery:
Over 10 years, IRA could lead to reductions of up to 139 new FDA approvals
41 impacted firms, 2026 – 2035

Number of Novel New FDA
Approvals Per Year

Rate of IRA Losses

10 Year Losses of New
Therapies

35

40%

139

•

The challenge with any analysis of IRA is that we can only calculate its impacts upon a fixed CMS dataset
at one point in time (2022).

•

However, the FDA approves, on average, 35 new therapies per year.

•

As new therapies will enter the CMS cohort each year, if we assume the current impact rates remain
constant, all things being equal, we could see declines of up to 139 approvals over the next 10 years.

© Vital Transformation, LLC 2023

16

IRA Impact on Small Molecules and Biologics© Vital Transformation, LLC 2023

17

Average revenue declines by type of therapy under IRA
Type of Therapy
Biologic
Small Molecule••

Number in Cohort
17
75

Average Reduction in revenue pertherapy ($US billion)-$4.9 billion-$4 billion

On average, the cost per use of an individual biologic therapy is slightly higher than the cost
per use of a small molecule therapy.
Although the number of individual biologics impacted by IRA is lesser than the number ofindividual small molecules, the average impact on each biologic therapy is larger when IRA is
implemented.

© Vital Transformation, LLC 2023

18

Average annual impact on revenue for the entire class of
small molecules and biologics($US bil)Billions

IRA impact on small molecules and biologics
0
-10

-$3
-$3

-$6

-20

-$10

-$8

-$8

-$11

-$11

-$12

-$14

-$19

-30

-$16

-$25
-$33

-40

-$43

-50

-$48
-$54

-60

-$61

-70
2026

2027

2028

2029

2030

Small Molecules

2031

2032

2033

2034

Biologics© Vital Transformation, LLC 2023

2035

While the impacts toboth small moleculeand biologics are
significant, on
average, the annual
revenue loss on theentire class of small
molecules is greater
largely because there
are more small
molecules on themarket and because
Medicare negotiation
begins 2 years earlier
for small molecules.
19

Small molecules eventually go generic and can be taken at home

“You want to encourage the small
molecule drugs, they go generic…as asociety, we want more small moleculedrugs. So it’s weird we’re squeezing
the small molecule manufacturers”
Amitabh Chandra, Director of Health
Policy Research, Harvard Kennedy
School of Government.

© Vital Transformation, LLC 2023

20

Groupings by first author/primary institute for papers published on
approved drugs separated by therapeutic area (2006 – 2016)

IRA poses
enormous risks
to the Neurology
pipeline whichappears to be
dominated bysmall molecules.

Source: “The impact of external innovation on new drug approvals: A retrospective Analysis,” Xiong Liua et al, International Journal of Pharmaceutics, 564 (2019) 273-281© Vital Transformation, LLC 2023

21

The IRA poses risks to Neuroscience (CNS) Research
CNS Program Portfolios in Large Pharma
Company
Abbott/AbbVie
AstraZeneca
Bristol-Myers Squibb
GlaxoSmithKline
Johnson & Johnson
Lilly
Merck/Schering-Plough
Novartis
Pfizer/WyethRoche/Genentech
Sanofi/Genzyme
Total Programs

2009
17
21
12
40
18
16
32
14
46
22
29
267

2014
10
7
2
14
17
9
7
15
15
21
12
129

•

Biopharma companies
have downsized theirneuroscience research.

•

IRA will likely accelerate
the decline inneurological research
particularly in small
molecule therapies.

Neuron, Volume 84, Issue 3, Medicines for the Mind: Policy-Based “Pull” Incentives for Creating Breakthrough CNS Drugs;
Dennis W. Choi, Robert Armitage, et al.; 2014, Pages 554-563; ISSN 0896-6273,
https://doi.org/10.1016/j.neuron.2014.10.027. (https://www.sciencedirect.com/science/article/pii/S0896627314009477)© Vital Transformation, LLC 2023

22

The number of Alzheimer's RCTs declined by 50% between 2009 and 2022
60

50

40

Phase 330

Phase 2Phase 1

20

10

0
2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Source clinicaltrials.gov© Vital Transformation, LLC 2023

23

Unintended Consequences - IRA’s impact on orphan indications© Vital Transformation, LLC 2023

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IRA disincentivizes investments in additional orphan indications
Initial Indication 2nd indication 40 % 2nd Indication w/
IRA
No IRA Impat
Increase
IRA Impact
Impacts
Pre Clincial
-$450
-$450
-$450
100%
1
$60
$60
$60
100%
2
$120
$120
$120
100%
3
$180
$180
$180
100%
4
$200
$150
$150
100%
5
$300
$250
$250
100%
$510
$510
6
$400
100%
7
$550
$770
$770
100%
8
$700
$980
$980
100%
9
$840
$1,176
$882
75%
10
$941
$1,317$988
75%
11$1,054$1,475$1,10675%
12$1,180$1,652$1,07465%
13$1,180$1,652$1,07465%
14$1,121$1,570$1,02065%
15$1,065$1,491$969
65%
16$1,012$1,417
$567
40%
17
$961
$1,346
$538
40%
Year

NPV

$3,421$4,646$3,421•

IRA allows an exemption from negotiation for drugs only
commercialized for a single indication and orphan
therapies.

•

Genetic based orphan therapies are limited in their ability
to target additional indications, IRA may cause companies
to question if the revenue penalties are worth the risk ofinvesting in a 2nd indication.

•

Our model (left), demonstrates that adding an indication
does increase revenues by 40% starting in year 6, however,it will be impacted by IRA, therefore it generates the same
NPV as not adding an indication at all.

•

Our model assumes that the extra label required aninvestment of $50 mil a year for three years ($150 mil total)
to fulfil in years 4 – 6.

$US Mil, 10% cost of capital, 2023 constant dollars© Vital Transformation, LLC 2023

25

IRA’s Impact on Orphan Dugs Including Oncology
N=206 (oncology = 158, non-oncology = 48)
Accelerated Approvals by Primary and Secondary Indications, 2001 – 2021
84

Oncology

74•

From 2001 -2021, 160 of 206
accelerated approvals were fororphan oncology therapies, 78%of the cohort.

•

The accelerated approval oforphan oncology products is
considered an enormous successof the US innovation andregulatory ecosystems.

•

IRA puts the current approach at
risk.

Infectious Disease
Hematology
Neurology
Nephrology
Endocrinology
Pulmonology
Immunology

11 8

754

Gastroenterology

21111

21

1

12

Gynecology
Parasitology

Primary Approvals

Secondary Approvals© Vital Transformation, LLC 2023

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IRA penalizes accelerated orphan oncology indications
The preferred approach to oncology approvals is disincentivized to the detriment of patients
IRA impact of avoiding acclerated approval orphan release•

Entering the market with an orphan
approval creates a ‘penalty’ due to
IRA’s impact upon peak sales; the IRA
clock starts ticking when you haveyour first approval.

•

The model on the left shows thatdelaying market entry by three years,
and focusing on a non-orphan
indication at launch, improves the
NPV by $500 mil $USD.

•

Leading with an accelerated oncology
indication to de-risk R&D appears to
be a far less favorable strategy under
IRA; this may require a radical shift inbiopharma’s current go-to market
paradigm.

$3.500$3.000$2.500$2.000$1.500

Revenues lost bydelaying/avoiding entry with anaccelerated orphan indication(left) are made up capturing
higher peak sales by starting the
IRA clock later (above).

$1.000$500$$(500)$(1.000)

Pre 1
Pre 2
Pre 3
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27

Millions

Onclogy products ROI is larger with a 3 year dealy in FDA approvalYears from launch of clinical development with FDA

IRA AA Orphan = NPV $4.5

IRA 3 Year Entry Delay, No AA Orphan = NPV $5 bil$US Mil, 10% cost of capital, 2023 constant dollars© Vital Transformation, LLC 2023

27

IRA’s impact on Jobs

© Vital Transformation, LLC 2023

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IRA Direct and Total Supported Annual Job Losses by Avg Cohort Impact
Total US and Puerto Rico by State/District/Region

Jobs Impact: 2026 - 2035 $38.7 Billion Avg Annual Revenue Reductions (Cohort)State

Direct Biopharma
Jobs Impact

Total Biopharma
Supported Jobs Impact

Biopharma Supported
Output Impact ($M)

Totals, U.S. & Puerto Rico
California
New Jersey
Massachusetts
Pennsylvania
North Carolina
Illinois
New York
Texas
Indiana
FloridaMarylandOhio
Michigan
Puerto Rico
Utah
Missouri
Washington
Georgia
Wisconsin
Tennessee
Colorado
Arizona
Virginia
Minnesota
Connecticut
Kansas-68,874-11,857-5,155-5,157-3,976-3,818-3,461-4,684-3,230-2,094-2,187-2,594-1,774-1,357-1,520-1,047-1,042-1,307-986-928-1,031
-732
-714
-824
-645
-761
-493

-342,944-64,511-25,919-24,144-21,556-21,316-20,951-19,599-16,664-11,883-11,115-11,020-7,711-7,343-6,623-6,217-5,609-4,841-4,839-4,375-3,943-3,883-3,526-3,449-3,406-3,009-2,343($97,603)($19,564)($7,085)($6,020)($5,715)($6,323)($6,198)($5,698)($4,568)($4,723)($2,465)($2,871)($1,874)($1,935)($4,894)($1,470)($1,371)($1,145)($1,134)($1,022)($887)($953)($776)($841)($831)($765)($587)

State (Cont)

Direct Biopharma
Total Biopharma Supported
Jobs Impact
Jobs Impact (Cont)(Cont)South Carolina
MaineWest Virginia
Iowa
KentuckyOregonDelawareNebraska
Alabama
Rhode Island
New Mexico
New Hampshire
Oklahoma
NevadaLouisiana
Mississippi
Vermont
Idaho
ArkansasMontana
HawaiiDC
Wyoming
South Dakota
North Dakota
Alaska

-436
-386
-398
-475
-449
-355
-422
-265
-298
-164
-303
-204
-235
-182
-233
-153
-98
-80
-70
-72
-77
-54
-26
-27
-24
-14

-2096
-1964
-1928
-1852
-1631
-1469
-1458
-1243
-1222
-1125
-1060
-954
-924
-839
-792
-680
-398
-328
-325
-239
-220
-126
-93
-84
-69
-30

Biopharma Supported
Output Impact ($M)($579)($438)($640)($501)($373)($327)($324)($352)($343)($310)($222)($230)($217)($203)($179)($192)
($96)
($77)
($86)
($49)
($41)
($37)
($33)
($15)
($18)
($6)

Source: TEConomy analysis; IMPLAN U.S. 2017 Model, VT adjusted for average annual reduction of IRA cohort revenue, 2023 constant dollars.

© Vital Transformation, LLC 2023

29

IRA Direct and Total Supported Annual Job Losses by Peak Year Sales Impact
Total US and Puerto Rico by State/District/Region

Jobs Impact: 2026 - 2035 $76.3 Billion Avg Annual Revenue Reductions (Peak Sales Projection)
State
Totals, U.S. & Puerto Rico
California
New Jersey
Massachusetts
Pennsylvania
North Carolina
Illinois
New York
Texas
Indiana
FloridaMarylandOhio
Michigan
Puerto Rico
Utah
Missouri
Washington
Georgia
Wisconsin
Tennessee
Colorado
Arizona
Virginia
Minnesota
Connecticut
KansasDirect Biopharma
Total Biopharma
Jobs Impact
Supported Jobs Impact-135,948-23,405-10,176-10,180-7,849-7,537-6,832-9,245-6,375-4,133-4,317-5,120-3,502-2,678-3,000-2,066-2,056-2,581-1,946-1,832-2,035-1,445-1,409-1,626-1,274-1,502-973-676,928-127,337-51,161-47,658-42,550-42,076-41,355-38,686-32,892-23,455-21,939-21,752-15,220-14,495-13,073-12,272-11,071-9,556-9,551-8,635-7,782-7,665-6,961-6,807-6,723-5,939-4,624Biopharma Supported
Output Impact ($M)($192,656)($38,617)($13,984)($11,882)($11,280)($12,480)($12,234)($11,247)($9,017)($9,322)($4,865)($5,667)($3,698)($3,819)($9,661)($2,902)($2,706)($2,261)($2,237)($2,017)($1,751)($1,880)($1,532)($1,659)($1,640)($1,511)($1,159)

State (Cont)

Direct Biopharma
Total Biopharma Supported
Jobs Impact
Jobs Impact (Cont)(Cont)South Carolina
MaineWest Virginia
Iowa
KentuckyOregonDelawareNebraska
Alabama
Rhode Island
New Mexico
New Hampshire
Oklahoma
NevadaLouisiana
Mississippi
Vermont
Idaho
ArkansasMontana
HawaiiDC
Wyoming
South Dakota
North Dakota
Alaska

-861
-761
-785
-937
-886
-701
-832
-523
-588
-323
-599
-403
-464
-359
-461
-302
-194
-157
-138
-142
-151
-107
-51
-54
-47
-27

-4137
-3877
-3807
-3656
-3219
-2900
-2879
-2453
-2411
-2221
-2093
-1882
-1825
-1656
-1562
-1342
-786
-648
-641
-472
-433
-249
-183
-165
-136
-60

Biopharma Supported
Output Impact ($M)($1,143)($865)($1,263)($988)($736)($646)($640)($696)($677)($612)($438)($454)($429)($401)($353)($380)($189)($152)($170)
($96)
($81)
($73)
($66)
($30)
($35)
($12)

Source: TEConomy analysis; IMPLAN U.S. 2017 Model, VT adjusted for projected reductions in peak sales, 2023 constant dollars.
© Vital Transformation, LLC 2023

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IRA’s impact on Investments in US start-ups by state© Vital Transformation, LLC 2023

31

IRA’s impact on Investments in US start-ups by stateCalculating the impact of cash flow - 10 IRA firms

Avg Annual EBIT

Ave Annual EBIT Loss from IRA by Firm

% Loss EBIT

$10,242($3,103)-30%•

The 10 firms which we project to be
most likely to lose new approved
therapies due to IRA see an averageannual loss of free cash flow by 30%.

•

We now investigate the firm’s
investing behavior over the previous
10 years to see how their partnering
activities would have been reduced if
the IRA been in place.

IRA EBIT Impact of 10 firms with highest drug development losses$US mil, 2023 constant dollars
12

3% Loss of EBIT

-68%

4

-65%

5

6

-45%

-34%

7

8

9

10

-15%

-13%

-13%

-9%

-135%

-358%

© Vital Transformation, LLC 2023

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State investments by 10 IRA impacted firms with the most projected lost therapies
4/1/2014 - 3/31/2023

State
Total Deal Value Per State Number of Deals
California$27,927,600,000
44
Massachusetts$21,178,500,000
44
New York$14,894,999,990
7Washington$2,385,000,000
4North Carolina$1,888,000,0002Maryland$1,380,000,000
4
New Jersey$625,000,000
3Virginia$500,000,000
1
Wisconsin$456,500,000
1Illinois$420,000,000
2Connecticut$342,500,000
1Delaware$245,000,000
1
Pennsylvania$170,000,000
1
Iowa$20,000,000
1
Nevada$19,500,000
1
Totals$72,452,599,990
117•

Our 10 firm cohort invested $72.4
billion in partnerships in roughly 117
deals, an average of $619 million per
deal.

•

IRA reduces the available capital inthese firms by 30%, which will impact
deal selection.

© Vital Transformation, LLC 2023

33

Projected lost investments by 10 IRA impacted firms with a 30% reduction in EBIT in CA
4/1/2014 - 3/31/2023

California Lost Investments 4/1/2014 - 3/31/2023
Indication
Hemophilia
Solid Tumors
Amyloidosis
CancerInflammatory Disorders
Crohn's Disease
Ulcerative Colitis (UC)

Investments by Indication$3,560,000,000$3,544,766,667$3,385,000,000$3,355,000,000$2,625,000,000$1,390,000,000$1,390,000,000

Indication
DLBCL
Chronic Myelogenous Leukemia (CML)
Rheumatoid Arthritis (RA)Non-Alcoholic Steatohepatitis (NASH)
Alzheimer's Disease (AD)Alpha-1 Deficiency (A1AD or AATD)
NSCLC
Anemia Due to Chronic Kidney Disease
Pancreatic Cancer
Multiple Myeloma (MM)Thyroid Cancer
Colorectal Cancer (CRC)
Hypercholesterolemia
Dry AMDIRA EBIT Impact - 30% loss of investments

Loses by Indication$1,205,000,000$1,205,000,000$1,170,000,000$1,035,000,000$1,007,500,000$740,000,000$603,666,667$492,000,000$480,000,000$280,000,000$228,000,000$166,666,667$55,000,000$10,000,000-$8,378,280,000

We base our selection of indications by cumulative investment size as a proxy for demand© Vital Transformation, LLC 2023

34

Projected lost investments by 10 IRA impacted firms with a 30% reduction in EBIT in MA
4/1/2014 - 3/31/2023

Massachusetts Lost Investments 4/1/2014 - 3/31/2023
Indication
Muscular Dystrophy
Solid Tumors
Cystic Fibrosis (CF)AsthmaCancerPsoriasis

Investments by Indication$5,190,000,000$2,492,500,000$2,357,500,000$2,100,000,000$2,000,000,000$2,000,000,000

Indication
Sickle Cell Anemia
Hypercholesterolemia
Epstein Barr Virus (EBV)
Hematologic Cancer
Inflammatory Disorders
Hereditary Angioedema (HAE)
Crohn's Disease
Pulmonary Fibrosis
Chronic Pain
IRA EBIT Impact - 30% loss of investments

Loses by Indication$1,977,500,000$980,000,000$872,500,000$608,000,000$270,000,000$195,500,000$100,000,000$25,000,000$10,000,000-$6,353,550,000

We base our selection of indications by cumulative investment size as a proxy for demand© Vital Transformation, LLC 2023

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Projected lost investments by 10 IRA impacted firms with a 30% reduction in EBIT in NY, WA
4/1/2014 - 3/31/2023

NY, WA Lost Investments 4/1/2014 - 3/31/2023
State
Indication
NY Psoriasis

Investments by Indication State
Indication$13,400,000,000
WA Breast Cancer
WA Systemic Lupus Erythematosus (SLE)NY Seizure Disorders (Epilepsy)
NY Melanoma
WA Cancer
NY Undisclosed
NY DLBCLIRA EBIT Impact - 30% loss of investments

Loses by Indication$1,125,000,000$730,000,000$660,000,000$625,000,000$530,000,000$170,000,000$39,999,990-$5,183,999,997

We base our selection of indications by cumulative investment size as a proxy for demand© Vital Transformation, LLC 2023

36

Projected lost investments by 10 IRA impacted firms with a 30% reduction in EBIT in MD,
NC, VA, NJ, WI, IL, CT, DE, PA, IA, NV
4/1/2014 - 3/31/2023

MD, NC, VA, NJ, WI, IL, CT, DE, PA, IA, NV - Lost Investments 4/1/2014 - 3/31/2023
State
MD
NC
NC
VA
NJ

Indication
Wet AMD
Cystic Fibrosis (CF)Antibacterial
Inflammatory Disorders
Solid Tumors

Investments by Indication$1,380,000,000$1,090,000,000$798,000,000$500,000,000$475,000,000

State
Indication
WI
CancerIL
Celiac Disease
CT
Solid Tumors
DE
Desmoid Tumors
PA
Retinal Dystrophy
NJ
Celiac Disease
IA
Ebola
NV
Melanoma
IRA EBIT Impact - 30% loss of investments

Loses by Indication$456,500,000$420,000,000$342,500,000$245,000,000$170,000,000$150,000,000$20,000,000$19,500,000-$1,819,950,000

We base our selection of indications by cumulative investment size as a proxy for demand© Vital Transformation, LLC 2023

37

US disease prevalence of therapies in our cohort we project will no longer receive investments
Analysis of investing activity before IRA implementation, if 21% of free cash flow was lost by firms: 4/1/2014 - 3/31/2023

Indication
Epstein Barr Virus (EBV)
Chronic Pain
Non-Alcoholic Steatohepatitis (NASH)
Chronic Kidney Disease
Rheumatoid Arthritis (RA)Hypercholesterolemia
Dry AMD
Solid Tumors
Alzheimer's Disease (AD)Breast Cancer
Epilepsy
Crohn's Disease
Desmoid Tumors
Celiac Disease
Hematologic Cancer

Disease Prevelance

Indication (cont)297,000,000
Colorectal Cancer (CRC)
50,200,000
Melanoma
39,600,000
Thyroid Cancer
37,000,000
NSCLC
32,500,000
Systemic Lupus Erythematosus (SLE)28,000,000
Retinal Dystrophy
18,340,000
Multiple Myeloma (MM)18,200,000
DLBCL
6,700,000 Alpha-1 Antitrypsin Deficiency (A1AD or AATD)
3,771,794
Pulmonary Fibrosis
3,400,000
Sickle Cell Anemia
3,000,000
Pancreatic Cancer
3,000,000
Chronic Myelogenous Leukemia (CML)
2,481,203
Hereditary Angioedema (HAE)
1,650,000
Ebola© Vital Transformation, LLC 2023

Disease Prevelance (cont)1,369,005
1,361,282
915,664
576,924
345,000
184,048
144,922
143,000
100,000
100,000
100,000
89,24862,895
6,000
11

38

Conclusions
Implications of IRA

Conclusions and Implications of IRA•

IRA reduces net earnings for a 41 company cohort, but these impacts are highly concentrated in only
10 firms.

•

As measured by EBIT (annual net earning):–––

The IRA induced revenue reductions exceed 350% of the annual earnings for 25% of the 41 companies in ourcohort.
The IRA penalizes the most innovative, successful therapies which fund an outsized amount of research.
The IRA penalizes successful biopharma companies.

•

The IRA’s orphan drug carve-outs appear to have large unintended consequences for assets withlimited ability to seek secondary indications – according to our modeling, any extra indication must
produce at minimum 40% more revenue to offset the losses created by IRA.

•

IRA may act as a disincentive to the current strategy in oncology of launching with an orphan
indication to de-risk R&D – this will require a major paradigm shift for the industry, negatively
impacting patients requiring new effective late-stage oncology treatments.

•

We model a loss of U.S. jobs between loss of between 66,800 - 135,900 direct and 342,000 - 676,000
in the U.S. biopharma ecosystem. 252,000 and 365,000 based upon two impact scenarios.
© Vital Transformation, LLC 2022

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Disclosure•

Vital Transformation, an international health economics and strategy consultancy, was asked to
conduct an analysis of the impact of price controls as proposed in IRA, on the biopharmaceuticalinnovation ecosystem.

•

We investigated IRA’s impacts on investments and small company capital formation.

•

Our focus was new drug pipeline developments in orphan, small molecule, and biological products.

•

The opinions included in this work are those of Vital Transformation LLC, and not necessarily those of
the project’s sponsors.

•

The analysis was performed by Vital Transformation’s Consulting Economist Dr Harry Bowen, Research
Manager Dr Daniel Gassull, and CEO Duane Schulthess.

•This study was funded by the Biotechnology Innovation Organization, BIO.

•

The raw data behind this study is available by request.

© Vital Transformation, LLC 2022

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